Pension planning for the self-employed

Other tax-efficient savings

Some people choose to save for their future in other ways, such as an ISA or property. However, you should be aware that saving into a pension is normally the best way to save for retirement giving an income for life. Relying on ISAs and property can be a risky option.

An individual savings account (ISA) is a tax-free investment allowance, covering investments such as stocks, shares or unit trusts. You don't pay tax on income from them or on capital gains if they increase in value. The maximum you can pay into an ISA in any tax year is £7,000. You can put it all in one fund, with a spread of investments, cash and life insurance (maxi ISA), or choose up to three different providers (mini ISA) as follows:

• up to £4,000 in a stocks and shares ISA
• up to £3,000 in a cash ISA
• up to £1,000 in a life insurance ISA

To find the best ISA for you, access the comparative tables at the FSA website.

The advantages of an ISA are that you get more control over your savings and that they are easy to track and understand. ISAs are flexible and unrestrictive in that you can change to another provider and access and invest into the fund at any time. You also do not have to pay income tax on any growth in the value of an ISA.

The disadvantages are that you will miss out on tax relief on initial contributions, plus they may not be a particularly reliable investment for long-term saving as they could be withdrawn in the future, as PEPs and TESSAs were.

Property
The government proposals to simplify the taxation of pensions will allow savers to put residential property - including buy-to-let property - into their pension funds, as of 6 April 2006. This may prove especially attractive to those in the buy-to-let market, as the new regulations could cut tax bills. Currently, a Capital Gains Tax (CGT) charge must be paid when such a property is sold. In addition, the income that is received is also taxable.

Subjects covered in this guide

• Introduction
• Assessing your pension needs
• How a personal pension works
• The basic State Pension
• Stakeholder pension
• The difference between a stakeholder pension plan and a personal pension plan
• Other pension products
• Other tax-efficient savings
• Transferring your pension
• Keeping track of your pension